Practical Course / Developing Credit Risk Solutions
Belgrade, 26th – 28th March 2008

Review of the Basel II Capital Accord

• The Basel II regulation
• Credit Risk versus Operational Risk versus Market Risk
• Standard approach versus IRB approach
• PD versus LGD versus EAD
• Asset Correlation
• Risk management
• Application Scoring, Behavioural Scoring, Profit Scoring, Collection Scoring, Bankruptcy Prediction
• Risk Based Pricing
• Customized scorecards versus generic scorecards
• Credit scoring, knowledge discovery in data (KDD), and data mining
• The SAS SEMMA process
• Developing scorecards

Sampling and Data Preprocessing

• Selecting the sample
• Segmentation
• Oversampling versus Undersampling
• Credit scoring characteristics

• Application form characteristics
• Credit bureau characteristics

• Reject inference

• Define as bad
• Extrapolation
• Augmentation

• Withdrawal inference

• Determining the performance period
• Definitions of good and bad
• Direct versus indirect credit scoring
• Overriding and manual intervention
• Exploratory data analysis
• Outlier detection
• Outlier treatment

• truncation

• Missing values

• Imputation procedures
• Default values

• Nominal variables versus Ordinal variables

• Recoding procedures
• Classing and Binning procedures
• Weight of evidence coding
• Information Value

• Supervised versus Unsupervised learning

Developing PD models for Basel II

• Basic concepts of classification
• Classification techniques

• Logistic regression (odds, p-values, …)
• Decision trees

• Overfitting versus generalisation
• Input selection

• Filters
• Wrappers
• Forward versus backward search
• Principal component analysis
• Multicollinearity